Philip Morris International Inc · NYSE:PM
Philip Morris International — Q4 2016 Earnings Presentation
45 slides from Philip Morris International's earnings presentation, Feb 2, 2017
Slide 1: 2016 Fourth-Quarter and Full-Year Results
2016 Fourth-Quarter and Full-Year Results February 2, 2017 Exhibit 99.3
Slide 2: Introduction
2 Introduction ● Unless otherwise stated, we will be talking about results for the fourth-quarter and full-year 2016 and comparing them to the same period in 2015 ● A glossary of terms, adjustments and other calculations, as well as reconciliations to the most directly comparable U.S. GAAP measures,
Slide 3: Forward-Looking and Cautionary Statements
3 Forward-Looking and Cautionary Statements ● This presentation and related discussion contain forward-looking statements. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions, and PMI is identifying important factors that, individually or in the aggregate, cou
Slide 4: 2016: A Pivotal Year for PMI
4 2016: A Pivotal Year for PMI ● Exciting progress in our transformation from combustible tobacco products to a Reduced-Risk Products focused company ● Combustible tobacco portfolio remains the driver of our income growth ● RRP portfolio showing clear signs of its enormous potential Note: Reduced-Ri
Slide 5: Q4, 2016: Exceptionally Strong Financial Results
5 Q4, 2016: Exceptionally Strong Financial Results (a) Excluding currency Source: PMI Financials or estimates Net Revenues +10.5% Adjusted OCI +47.4% Adjusted Diluted EPS +51.9% Growth vs. PY(a)
Slide 6: 2016: As Expected, Strong Financial Results, ex-Currency
6 4.4% Net Revenues 2016: As Expected, Strong Financial Results, ex-Currency (a) Excluding currency Note: Reduced-Risk Products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these pr
Slide 7: 2016: As Expected, Strong Financial Results, ex-Currency
7 2016: As Expected, Strong Financial Results, ex-Currency 4.4% 10.3% Net Revenues Adjusted OCI ● Robust adjusted OCI growth, ex- currency, reflecting: - Higher net revenues - Favorable cost comparison vs. 2015 - Strong results across all four Regions ● Adjusted OCI margin: - +0.6 points to 41.8% -
Slide 8: 2016: As Expected, Strong Financial Results, ex-Currency
8 2016: As Expected, Strong Financial Results, ex-Currency 4.4% 10.3% 11.8% Net Revenues Adjusted OCI Adjusted Diluted EPS ● Adjusted diluted EPS increased by 1.4% to $4.48, despite a currency headwind of 46 cents: - First increase since 2013 Growth vs. PY(a) (a) Excluding currency Source: PMI Finan
Slide 9: 2016: Free Cash Flow In Line With Last Year
9 2016: Free Cash Flow In Line With Last Year ● Free cash flow stable at $6.9 billion, despite: - Unfavorable currency of $340 million - Previously announced increase in capital expenditures to support the manufacturing capacity expansion for HeatSticks ● Free cash flow increased by 4.9%, ex-currenc
Slide 10: 2016: PMI Volume
10 Note: Reduced-Risk Products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continued smoking Source: PMI Financials or estimates 2016: PMI Volume ● Cigarette
Slide 11: 2016: PMI International Cigarette Market Share Decline
11 Note: Excluding China and the U.S. Source: PMI Financials or estimates 2016: PMI International Cigarette Market Share Decline Mainly Due to Lower-Priced Brands in the Philippines (0.3)pp (0.2)pp (0.1)pp 28.5 27.9 2015 Other Brands 2016Fortune Jackpot PMI International Cigarette Market Share (%)
Slide 12: 2016: Robust Marlboro Cigarette Share Performance Overall
12 2016: Robust Marlboro Cigarette Share Performance Overall 0.2 0.3 0.6 (0.5) EU Asia LA&C Essentially Algeria Marlboro Cigarette Market Share Variance vs. PY (pp) (a) Excluding China Source: PMI Financials or estimates EEMA (a)
Slide 13: EU Region: Another Year of Adjusted OCI Growth, ex-Currency
13 1.0 0.5 0.4 0.2 (0.4) Spain France Germany Poland Source: PMI Financials or estimates EU Region: Another Year of Adjusted OCI Growth, ex-Currency ● Adjusted OCI growth, ex-currency, of 8.7% in 2016, driven by higher pricing: - Second straight year of growth ● Cigarette industry volume down by 1.6
Slide 14: Russia: Double-Digit OCI Growth in 2016, ex-Currency
14 Cigarette Industry Volume Decline vs. PY Russia: Double-Digit OCI Growth in 2016, ex-Currency 2016 2017 2018 2019 Ad Valorem Excise Tax (% of MRSP) 12.0% 14.5% 14.5% 14.5% Specific Excise Tax (RUB/000) 1,250 1,562 1,718 1,890 Minimum Excise Tax (RUB/000) 1,680 2,123 2,335 2,568 New Excise Tax Cod
Slide 15: Japan: Strong Combined Market Share Growth
15 (a) Combined market share includes cigarettes and Marlboro HeatSticks Note: Reduced-Risk Products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continued smo
Slide 16: Indonesia: Double-Digit OCI Growth in 2016
16 Source: PMI Financials or estimates ● Important profit driver for PMI: - Double-digit OCI growth, mainly reflecting strong pricing ● Cigarette industry volume down by 1.4%, due mainly to a soft economy and excise-tax driven retail price increases ● Cigarette share decline due mainly to: - Soft pe
Slide 17: Philippines: Exceptional Marlboro Performance in 2016
17 Note: Net retail price is the recommended retail selling price less the applicable excise tax and VAT Source: PMI Financials or estimates ● Improved profit driven by higher pricing and favorable mix ● Cigarette share decline due mainly to lower-priced Fortune and Jackpot ● Marlboro performed exce
Slide 18: LA&C Region: Strong Currency-Neutral 2016 Performance
18 Note: Pack design is for illustrative purposes only Source: PMI Financials or estimates LA&C Region: Strong Currency-Neutral 2016 Performance ● Adjusted OCI up by 12.4%, ex- currency, driven by higher pricing, notably in Argentina and Canada ● Regional cigarette market share growth: - Driven by M
Slide 19: IQOS: High Conversion Rates
19 IQOS: High Conversion Rates 7 12 14 9 15 15 69 65 65 65 56 54 76 77 79 74 71 69 Japan Italy Portugal Romania Russia Switzerland Converted (≥95% IQOS) Predominant (70%-95% IQOS) December 2016 Adult Smoker Conversion Rates (%)(a) (a) Data relates to December 2016 User Panel with the exception of Ja
Slide 20: IQOS: HeatSticks Offtake Volume Trends
20 0 1,600 IQOS: HeatSticks Offtake Volume Trends (Index) Weekly Indexed Offtake Volume Performance (2016) (4-week moving average) January June March September December Romania Russia Portugal Switzerland Italy Japan 1,249 1,597 1,444 956 300 993 0.3% Weekly Offtake SoM (Year-end 2016) 7.0% 1.2% 0.4
Slide 21: 2017 EPS Guidance
21 2017 EPS Guidance ● Reported diluted EPS guidance for 2017 is $4.70 to $4.85 at prevailing exchange rates, compared to $4.48 in 2016: - Includes approximately 18 cents of unfavorable currency at prevailing exchange rates - Does not include any share repurchases ● Excluding currency, our guidance
Slide 22: 2017 EPS Guidance: Impact of Currency
22 ● 18 cents of unfavorable currency in our 2017 EPS guidance, at prevailing exchange rates: ● We have currently hedged approximately 40% of our 2017 forecast sales to Japan, which, at prevailing exchange rates, translates to an effective rate of 114 Yen to the U.S. Dollar (vs. 111 Yen in 2016) Tur
Slide 23: 2017 EPS Guidance: Key Variables
23 2017 EPS Guidance: Key Variables ● RRPs introduce higher forecasting volatility ● Guidance reflects net revenue growth in excess of our current currency-neutral annual growth target range of 4% to 6%(a), driven by: - Higher RRP volumes (reflecting both HeatSticks and IQOS devices) - Favorable pri
Slide 24: 2017: Cash Flow Outlook
24 2017: Cash Flow Outlook ● Target operating cash flow(a) of approximately $8.5 billion, reflecting higher net earnings ● Anticipate capital expenditures of $1.5 billion, driven by increased investments to support RRP capacity expansion, notably for HeatSticks ● Focused on rewarding our shareholder
Slide 25: IQOS: Launched in Key Cities in 20 Markets To Date
25 EU Region (11) ● Denmark ● Germany ● Greece ● Italy ● Monaco ● Netherlands ● Portugal ● Romania ● Spain ● Switzerland ● United Kingdom (a) Japan (Chubu, Fukuoka, Osaka and Tokyo airports); Switzerland (Zurich airport) (b) Subject to HeatSticks capacity Note: Reduced-Risk Products ("RRPs") is the
Slide 26: IQOS: Expanding HeatSticks Capacity in 2017
26 IQOS: Expanding HeatSticks Capacity in 2017 Note: Reduced-Risk Products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continued smoking. Pack designs are for
Slide 27: RRPs: Exciting Progress with Our Other Platforms
27 Note: Reduced-Risk Products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continued smoking. The products depicted are subject to ongoing development and the
Slide 28: A Pivotal Year for PMI in 2016; Outlook Remains Strong for 2017
28 Note: Reduced-Risk Products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continued smoking Source: PMI Financials or estimates A Pivotal Year for PMI in 201
Slide 29: Questions & Answers
2016 Fourth-Quarter and Full-Year Results Questions & Answers Download PMI’s Investor Relations App iOS Android
Slide 30: Glossary and Reconciliation of Non-GAAP Measures
Glossary and Reconciliation of Non-GAAP Measures
Slide 31: Glossary: General Terms
31 Glossary: General Terms ● PMI refers to Philip Morris International Inc. and its subsidiaries ● Until March 28, 2008, PMI was a wholly owned subsidiary of Altria Group, Inc. ("Altria"). Since that time the company has been independent and is listed on the New York Stock Exchange (ticker symbol "P
Slide 32: Glossary: Financial Terms
32 Glossary: Financial Terms ● Net revenues exclude excise taxes ● Operating companies income, or "OCI", is defined as operating income, excluding general corporate expenses and the amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. Management evaluates busin
Slide 33: Glossary: Reduced-Risk Products
33 Glossary: Reduced-Risk Products ● Reduced-Risk Products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continued smoking. PMI has a range of RRPs in various s
Slide 34: Glossary: Reduced-Risk Products
34 Glossary: Reduced-Risk Products ● "Converted IQOS Users" means the estimated number of Legal Age (minimum 18-year-old) IQOS users that used HeatSticks for 95% or more of their daily tobacco consumption over the past seven days ● "Predominant IQOS Users" means the estimated number of Legal Age (mi
Slide 35: Reconciliation of Non-GAAP Measures: Currency and Acquisitions, Quarter
35 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended December 31, ($ in millions) (Unaudited) Net Revenues Less Excise Taxes Net Revenues excluding Excise Taxes Less Currency Net Revenu
Slide 36: Reconciliation of Operating Companies Income, Quarter
36 (a) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to previous slide PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Companies Income to Adjusted Operating Companies Income & Reconcilia
Slide 37: Reconciliation of Reported to Adjusted Diluted EPS, Quarter
37 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended December 31, (Unaudited) 2016 2015 % Change Reported Diluted EPS 1.10$ 0.80$ 37.
Slide 38: Reconciliation of Reported Diluted EPS ex-Currency, Quarter
38 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Quarters Ended December 31, (Unaudited) 2016 2015 % Change Reported Diluted EPS 1.10$ 0.80$ 37.5% Less: Currency impact
Slide 39: Reconciliation of Non-GAAP Measures: Currency and Acquisitions, Year
39 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) Net Revenues Less Excise Taxes Net Revenues excluding Excise Taxes Less Currency Net Revenues
Slide 40: Reconciliation of Operating Companies Income, Year
40 (a) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to previous slide PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Companies Income to Adjusted Operating Companies Income & Reconcilia
Slide 41: Calculation of Adjusted Operating Companies Income Margins
41 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Adjusted Operating Companies Income Margins ($ in millions) (Rounded) European Union 3,576$ (68)$ 3,644$ 26,563$ 18,495$ 8,068$ 45.2% EEMA 3,425 - 3,425 18,328 10,964 7,364 46.5% Asia 2,886 - 2,88
Slide 42: Reconciliation of Reported to Adjusted Diluted EPS, Year
42 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Years Ended December 31, (Unaudited) 2016 2015 % Change Reported Diluted EPS 4.48$ 4.42$ 1.4% A
Slide 43: Reconciliation of Reported Diluted EPS ex-Currency, Year
43 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Years Ended December 31, (Unaudited) 2016 2015 % Change Reported Diluted EPS 4.48$ 4.42$ 1.4% Less: Currency impact (0.4
Slide 44: Reconciliation of Operating Cash Flow to Free Cash Flow
44 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency For the Quarters and Years Ended December 31, ($ in millions) (Unaudited) (a) Operating Cash Flow For the Quarters E
Slide 45: 2016 Fourth-Quarter and Full-Year Results
2016 Fourth-Quarter and Full-Year Results February 2, 2017
Philip Morris International — Q4 2016 Earnings Presentation on 6ix